2002 (11) TMI 108 - SC - Customs

Wheteher assessee entitled to exeption notification No. 116 of 1988? Whether the operation constitutes such a process which will be part of manufacture ? Held that - The words substantial manufacture appear to indicate that there need not necessarily be manufacture, but that any activity, including activities like assembling, which result in a new product, which is commercially a different product from what is imported, would be sufficient. The words substantial manufacturing do not indicate in any manner that a substantial amount of the components must also be manufactured. If that were required the policy would have said so. Of course, as set out in the case of M/s. Rattan Exports Ltd., Delhi v. Collector of Customs, Calcutta reported in 1987 (8) TMI 84 - SUPREME COURT OF INDIA mere fixing of a part or two on a fully assembled product would not be considered to be manufacture. But that is not the case here. Therefore, the finding that manufacturing activity had not been undertaken cannot be sustained. Thus, it is clear that ultrasound scanners have been manufactured. As regards the contention that the appellants were not entitled to the benefit of the exemption notification it is to be noted that the licensing authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf. In favour of assessee.

Summary

Issues:
1. Misrepresentation in obtaining an advance license for import of components.
2. Compliance with conditions of exemption notification for duty exemption.
3. Interpretation of "substantial manufacturing activity" under the Duty Exemption Scheme.
4. Discrepancy in the value of components used in manufacturing.
5. Validity of the license despite alleged misrepresentation.
6. Authority to question misrepresentation in the license issuance.

Analysis:

1. The case involved an appeal against the Customs, Excise and Gold (Control) Appellate Tribunal's order regarding misrepresentation by the appellants in obtaining an advance license for importing components for manufacturing Ultrasound Scanners. The misrepresentation was related to the value of indigenous components to be used in manufacturing.

2. The Customs authorities levied duty and penalty on the appellants for non-compliance with the conditions of the exemption notification. The exemption allowed duty exemption for goods imported against an advance license for manufacturing products for export. The appellants were alleged to have not fulfilled the conditions of the exemption notification.

3. The interpretation of "substantial manufacturing activity" under the Duty Exemption Scheme was a crucial aspect of the case. The Tribunal emphasized that substantial manufacturing activity required not only the final product but also a significant amount of its components to be manufactured by the party, which the appellants were found lacking.

4. The discrepancy in the value of components used in manufacturing was highlighted, with the appellants using a much lower value of components than what was indicated in their application for the license. This raised questions about the actual manufacturing activity undertaken by the appellants.

5. Despite the alleged misrepresentation in the license application, the Court noted that the licensing authority did not cancel the license or take any action, indicating that the license was valid. The Customs authorities could not deny the exemption benefits based on misrepresentation without action from the licensing authority.

6. The Court clarified that if there was any misrepresentation in obtaining the license, it was the responsibility of the licensing authority to address it. Since the license was not questioned or canceled by the authority, the Customs authorities could not refuse exemption benefits based on alleged misrepresentation.

In conclusion, the Supreme Court set aside the impugned order and the Collector's order, dismissing the show cause notice. The civil appeals were allowed, with no order as to costs. The judgment emphasized the importance of adherence to conditions of exemption notifications and the authority's role in addressing misrepresentation in license applications.